eCost (ECST) falls 9% in late trading after reporting 4Q04 results

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eCost, the online retailer of computer hardware and software that is expanding into other retail categories, announced Q4 results. EPS of a one cent loss missed consensus estimates by a penny, though revenue beat consensus. Details and a quick comment:

Q4 Results

  • Adjusted EPS of ($0.01) missed consensus by a penny.
  • Revenue of $58.1 million, up 60% year over year, beat consensus of $53.2 million.
  • 138,500 new customers added in the quarter, up 74% year over year, bringing the total to over 1 million.
  • Sales mix: computer hardware and software fell to 60% of sales from 70% a year earlier.
  • Product categories with triple digit growth: home electronics, housewares, watches and jewelry, DVD movies, and video games.
  • Sales mix: 70% new product, 30% close-out/refurbished.
  • Gross margin rose to 8.6% from 7.8% a year earlier.
  • Gross profit of $2.1 million was up 76% year over year.
  • SG&A of $5.6 million rose to 9.6% of revenue from 8.9% a year earlier. The reason? "Additional advertising and promotional expenses that led to the Company's strong customer growth, higher personnel costs to expand's management team and additional regulatory costs of being a public company."
  • Advertising costs up 53% year over year to 3.6% of sales. In Q3 they were 3.2% of sales.
  • Customer acquisition cost fell to $14.93 from $16.91 a year earlier.
  • Average order value was $302, slightly higher than a year earlier.
  • Cash at end-quarter of $16 million fell from $19.7 million in Q3.

Q1 Guidance

Larger loss than Q4, due to higher expenses due to advertising and separation costs from PC Mall.

Full Year 2005 Guidance

"We are very optimistic about the year ahead and anticipate continued strong sales growth of approximately 50% for the year 2005 and profitability for the full year."

Note: (1) 50% growth is with "possible fluctuations for the quarters." (2) Profitability is "with emphasis on the second half".

Quick comments

  • eCost CEO Adam Shaffer highlighted jewelry and watches as a particularly attractive category to deepen. With Overstock's recent emphasis on jewelry, it looks like this is an area of focus for e-tailers. Can't be good news for the offline jewelry retailers...
  • New product categories that eCost is considering entering this year: health and fitness, gifts and gadgets, Voice-over Internet Protocol telephony, music, books, and pet supplies. Hey - isn't everyone (even Earthlink and United Online) entering the VoIP market???
  • eCost currently has a market cap of about $193 million and an enterprise value of about $163 million.

ECST chart below.

Full disclosure: at the time of writing I'm short TIF, an offline jewelry retailer.